We use cookies on this website, including web analysis cookies. By using this site, you agree that we may store and access cookies on your device. You have the right to opt out of web analysis at any time. Find out more about our cookie policy and how to opt out of web analysis.

The effects of privatization on exports and jobs

Can the privatization of state-owned enterprises generate
a virtuous cycle between exports and employment?

Elevator pitch

The privatization of state-owned enterprises (SOE) in
transition economies has often been found to improve employment and productivity of
privatized SOEs, despite policymakers’ fears regarding possible job cuts. This positive
effect can be enhanced if privatization also promotes firms’ exports. A recent
firm-level analysis of China reveals that privatization has indeed a positive effect on
export propensity, employment, and productivity in both the short and long term. The
effect mostly stems from changes in firms’ attitudes about profits and risks due to
competitive pressure.

Key findings

Pros

The privatization of SOEs in transition economies
increases employment and productivity.

The probability that firms export increases due to
privatization, primarily because their attitudes about risks and profits
change.

Privatization may lead to a virtuous cycle among
productivity, exports, and employment.

Restrictions on marginal ownership and institutional
reforms help maximize the benefits of privatization.

Cons

The estimated effect of privatization on export
propensity is based primarily on small- and medium-sized SOEs.

There is hardly any empirical evidence on the
effects of privatization for large SOEs.

Because the estimated effect of privatization is
drawn mostly from China and the former Soviet Union, it is not clear whether the
results can be applied to privatization in less developed countries.

Author's main message

Governments in transition and emerging economies should
not fear the potential negative effects of privatization on employment; instead, they
should recognize its positive impacts on employment and productivity. Moreover,
privatization promotes exports, which in turn generates a virtuous cycle between
employment, productivity, and exports. To maximize its benefits, privatization should be
associated with restrictions on how involved managers can be in the ownership of
privatized firms and institutional reforms should be implemented that promote trade
openness, financial freedom, and anti-corruption.